My single biggest personal improvement as CEO occurred on the day when I stopped being too positive.

As a young CEO, I felt the pressure—the pressure of employees depending on me, the pressure of not really knowing what I was doing, the pressure of being responsible for tens of millions of dollars of other people’s money. As a consequence of this pressure, I took losses extremely hard. If we failed to win a customer or slipped a date or shipped a product that wasn’t quite right, it weighed heavily on me. I thought that I would make the problem worse by transferring that burden to my employees. Instead, I thought I should project a positive, sunny demeanor and rally the unburdened troops to victory. I was completely wrong.

I realized my error during a conversation with my brother in-law, Cartheu. At the time, Cartheu worked for AT&T as a telephone repairman (he is one of those guys that climbs the poles). I had just met a senior executive at AT&T who I’ll call Fred Johnson, and I was excited to find out if Cartheu knew him. When I inquired, Cartheu said, “Yeah, I know Fred. He comes by about once a quarter to blow a little sunshine up my ass.” At that moment, I knew then that I’d been screwing up my company by being too positive.

In my mind, I was keeping everyone in high spirits by accentuating the positive and ignoring the negative. But my team saw that reality was more nuanced than I was describing it. And not only did they see for themselves that the world wasn’t as rosy as I was describing it, they still had to listen to me blowing sunshine up their butts at every company meeting.

How did I make such a big mistake and why was it such a big mistake?

The Positivity Delusion

As the highest-ranking person in the company, I thought that I would be best able to handle bad news. Interestingly, the opposite was actually true: nobody took bad news harder than me. Engineers easily brushed off things that kept me awake all night. After all, I was the founding CEO. I was the one married to the company. If things went horribly wrong, they could walk away, but I could not. As a consequence, the employees handled losses much better than me.

Even more stupidly, I thought that it was my job and my job only to worry about the company’s problems. Had I been thinking more clearly, I would have realized that it didn’t make sense for me to be the only one to worry about, for example, the product not being quite right—because I wasn’t writing the code that would fix it.

A much better idea would be to give the problem to the people who could not only fix it, but would be personally excited and motivated to do so. Another example: if we lost a big prospect, the whole organization needed to understand why so that we could together fix the things that were broken in our products, marketing, and sales process. If I insisted on keeping the burdens of setbacks to myself, there was no way to jump start that process.

Why it’s imperative to tell it like it is

There are three key reasons why being transparent about your company’s problems makes sense:

1. Trust

Without trust, communication breaks. More specifically:

In any human interaction, the required amount of communication is inversely proportional to the level of trust

Consider the following. If I trust you completely, then I require no explanation or communication of your actions whatsoever, because I know that whatever you are doing is in my best interests. On the other hand, if I don’t trust you at all, then no amount of talking, explaining or reasoning will have any effect on me, because I do not trust that you are telling me the truth.

In a company context, this is a critical point. As a company grows, communication becomes its biggest challenge. If the employees fundamentally trust the CEO, then communication will be vastly more efficient than if they don’t. Telling things as they are is a critical part of building this trust. A CEO's ability to build this trust over time is often the difference between companies that execute well and companies that are chaotic.

2. The more brains working on the hard problems, the better

In order to build a great technology company, you have to hire lots of incredibly smart people. It’s a total waste to have lots of big brains, but not let them work on your biggest problems. A brain, no matter how big, cannot solve a problem that it doesn’t know about. As the open source community would explain it, "given enough eyeballs, all bugs are shallow."

If you investigate companies which have failed, you will find many employees who knew about the fatal issues long before those issues killed the company. If the employees knew about the deadly problems, why didn’t they say something? Too often the answer is that the company culture discouraged the spread of bad news, so the knowledge lay dormant until it was too late to act.

A healthy company culture encourages people to share bad news. A company that discusses its problems freely and openly can quickly solve them. A company that covers up its problems frustrates everyone involved. The resulting action item for CEOs: build a culture which rewards—not punishes—people for getting problems into the open where they can be solved.

As a corollary, beware of management maxims that stop information from flowing freely in your company. For example, consider the old management standard: “don’t bring me a problem without bringing me a solution.” What if the employee cannot solve an important problem? For example, what if an engineer identifies a serious flaw in the way the product is being marketed? Do you really want him to bury that information? Management truisms like these may be good for employees to aspire to in the abstract, but they can also be the enemy of free-flowing information—some of which may be critical for the health of the company.

Final thought

If you run a company, you will experience overwhelming psychological pressure to be overly positive. Stand up to the pressure, face your fear, and tell it like it is.